As relations between the U.S. and Pakistan reach new lows, building a more stable U.S.-India relationship has obvious advantages for American interests in South Asia. The U.S. and India have enjoyed increased trade and security cooperation over the last decade, and after several decades of troubled relations with Pakistan, India is a natural candidate for a more reliable ally in the region. However, the centerpiece of improved U.S.-Indian ties — the nuclear deal negotiated by the Bush administration — has run into trouble, and could fall apart. Because of its prominence and the political capital expended on the deal — which calls for India to build a wall between its military and civilian nuclear facilities, the latter of which would be subject to Western oversight, in exchange for the U.S. ushering India into the international nuclear community — any failure at this late stage could significantly harm the ability and willingness of both governments to pursue closer ties.

U.S.-Indian ties have been improving ever since the Clinton administration, but traditionally, there has always been an American tilt toward Pakistan, and this tilt has remained in place at the same time that the Bush and Obama administrations have worked to strengthen ties with India. Shortly after President Obama's election, there was speculation that the new administration might follow through on campaign rhetoric to attempt to mediate the Kashmir dispute in the hopes of gaining more Pakistani support against the Taliban. Outside mediation of Kashmir's status has long been a Pakistani demand, and the suggestion that Obama might yield to it caused some alarm in India. The idea, however, was quickly dropped once it became clear that it would lead nowhere.

If the administration hopes to salvage the nuclear deal with India, it must take greater account of the Indian public's strong opposition.

Despite this rocky start with New Delhi, the Obama administration has proved itself to be anything but supportive of Pakistani demands on any issue, and Secretary of State Hillary Clinton's recent visit was widely viewed as a move to shore up ties with India as the alliance with Pakistan falters. This could translate into an even stronger relationship with India. However, even after state visits by Obama and Indian Prime Minister Manmohan Singh, along with U.S. support for a permanent seat for India on the U.N. Security Council, there has been relatively little progress in strengthening U.S.-Indian ties. India has no enthusiasm for isolating Iran and has expressed open opposition to the intervention in Libya after abstaining on the U.N. vote, and its efforts to exert influence in Afghanistan provoke mixed reactions from the Obama administration, which is trying to wind down the war there. But all of these hiccups might be expected, so it is the delay in moving forward on the nuclear deal that is perhaps the most disappointing development.

The nuclear agreement between the U.S. and India has run into a new obstacle in India, where a stringent nuclear liability law passed by India's parliament threatens to delay implementation of the deal indefinitely. While the tough liability law was the price Prime Minister Singh's ruling coalition had to pay to win support in parliament for opening India's nuclear market, the U.S. insists on loosening the law's requirements on the grounds that U.S. firms will not risk investing there under current rules.

After struggling to get the current law passed, the Singh government cannot afford to water it down now. Indian memories of the 1984 Bhopal chemical disaster, and the limited accountability for the foreign company responsible, have turned public opinion against weakening the liability law. More recent fears of nuclear accidents stoked by the Fukushima meltdown in Japan have encouraged additional opposition to revisiting the terms of the law. While the nuclear deal has never been popular on the Indian left, the main nationalist opposition Bharatiya Janata Party (BJP) has exploited the issue for partisan gain, putting added pressure on Singh's Congress party–led government. Singh's government is effectively paralyzed from making any changes to satisfy U.S. demands, and risks "political suicide" if it tries.

As the U.S.-Indian relationship "drifts," as an editorial in the Hindustan Times put it recently, France and Russia have been able to take advantage of the opening in India's nuclear market, because their partly or wholly state-owned firms are better protected against liability claims. And while the U.S. and Indian governments remain formally committed to implementing the deal, there is definite frustration on the Indian side at U.S. pressure to "engage" with the International Atomic Energy Agency on this question, since the Indian government sees this as an additional, burdensome requirement.

If the administration hopes to salvage the nuclear deal with India, it must take greater account of the Indian public's strong opposition to weakening the liability law. Practically, it needs to find some mechanism or work-around that will allow the Singh government to allay U.S. firms' concerns, without asking it to take outsized political risks. U.S. firms will hardly benefit if U.S. pressure on India provokes a furious backlash against the deal and the government that has risked much of its reputation on it.